Recently, much has been said of an impending recession and what the government or monetary authorities should do to combat a prolonged recession. Ben Bernanke, chairman of the Federal Open Market Committee, recently endorsed a fiscal stimulus package in addition to aggressive monetary actions to fight off a possible recession. However, Dr. Bernanke only advocated certain types of fiscal stimulus in order to improve the timing of the action. Many are concerned that further cuts in overnight lending rates might worsen the economic outlook rather than improve it. However, uncertainty about the usefulness of fiscal policy has also existed since it has been used to stabilize the economy. Fiscal authorities are under pressure from voters to keep the economy from fluctuating, but have had limited success, especially when battling short-run fluctuations. However, many economists still advocate using fiscal policy when facing a long-run shortfall in output.
Questions you might try to answer:
- Given all that has been discussed in class, do you agree with or disagree with the steps taken by the monetary and fiscal authorities since the beginning of 2008?
- Knowing that the current economic downturn/slowdown is related to credit markets, what other tools has the Fed used to try and create more liquidity in the economy? Will using these tools have an impact on output in the short-run? long-run?
- If it turns out that the economy has a quick recovery, and shows signs of growth by the end of the year, what should a ‘responsible’ fiscal authority do in order to counteract the moves made during the first half of 2008? Do you think this is politically possible?
I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.